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Monthly Child Tax Credit Is Helping Families Buy Food and Pay Bills

Mother works while her two children participate in remote learning.

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Key Takeaways

  • According to a survey conducted by the U.S. Census Bureau, financial hardship declined from 31.5 to 29% among families with children who received Child Tax Credit (CTC). 
  • Food insufficiency also declined after families received their first tax credit check. 
  • Research shows that CTC drastically cuts poverty, especially among racial and ethnic groups, and increases educational attainment among young children.

Last month, the Internal Revenue Service (IRS) began its first round of Child Tax Credit (CTC) payments to roughly 35 million eligible families with children. These monthly checks will run through December are meant to alleviate economic hardship exacerbated by the pandemic.

Now, a new report suggests the credits are working. On August 11, the U.S. Census Bureau released results from their Household Pulse Survey, which collected responses from families before and after the arrival of the first CTC checks. 

The survey found that households with children were more likely to experience food insufficiency, or not having enough food to eat. Forty-seven percent of respondents reported spending part of their CTC payments on food.

And once the first set of checks arrived, households saw a three percentage point decline in food insufficiency from 11% to 8.4%. The report also found that financial hardship among families with children dropped from 31.5% pre-tax credit to 29% post-tax credit.

Many respondents reported spending their CTC payments on a combination of things. Nearly 10% of adults in households that received the CTC—and 17% of those with at least one child under age 5—spent their check on child care.

The data was collected from July 21 through August 2, 2021. Invitations to complete this survey were sent to nearly 1,050,000 households. Of those households, the U.S. Census Bureau received a total of 64,562 responses, a response rate of 6.1%.

While the CTC has been in place since 1997, it was expanded under the American Rescue Plan, which was signed into law on March 11, 2021. The expansion allowed the government to increase payments from $2,000 per child in 2020 to $3,600 per child under 6. And instead of only giving families the option to receive their check as one lump sum at the end of the year, they can now opt-in to monthly payments instead.

“The Child Tax Credit is a tax benefit in the form of direct payments to help families who are raising children under 18 years old,” Julio Gonzalez, the CEO and founder of Engineered Tax Services, tells Verywell. “For each child ages six to 16, it’s increased from $2,000 to $3,000,” Gonzalez explains. “It also now makes 17-year olds eligible for the $3,000 credit.”

What This Means For You

CTC payments were distributed to families who filed a 2019 or 2020 income tax return. Low-income families can still sign up for advance CTC payments. You can manage your payments here.

What Are the Long-Term Benefits of the CTC?

The CTC aims at reducing child poverty, according to Matthew Dimick, PhD, JD, professor of law at the University at Buffalo School of Law. Both food insecurity and unstable housing, as a result of financial hardship, can curtail children’s futures.

“Because it is available primarily to families in the bottom part of the income distribution, it primarily benefits poorer families with children,” Dimick tells Verywell. “Received as a monthly allowance is also very significant for poor families living paycheck to paycheck."

In order for families to qualify, Gonzalez says that a couple must make less than $150,000 a year. For single parents, they must earn less than $112,500 per year. 

Families with a higher income than the threshold may receive a smaller credit. However, families making over the aforementioned amounts may not qualify for any credit at all, Gonzalez says. 

An analysis conducted by Brookings found that CTC payments could drastically cut child poverty across racial groups, including Black, Hispanic, and Native American children. The CTC is also expected to reduce the number of children living in deep poverty, the analysis finds.

Dimick says that while he is uncertain whether the “child allowance” will go beyond 2021, $3,000 is generous and can be meaningful in a family living in poverty. Research also shows that the payments increase children’s educational attainment and improves their health.

“They’re [CTC] helping to eradicate child poverty in America, which is one of our biggest problems," Gonzalez says. "During the pandemic, it came out in the news just how many children are going to bed hungry in America. Now they’re getting the help they need.”

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Article Sources
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  1. U.S. Census Bureau. Economic Hardship Declined in Households With Children as Child Tax Credit Payments Arrived. Updated August 11, 2021. 

  2. Tax Policy Center. What is the child tax credit? 

  3. Brookings. New child tax credit could slash poverty now and boost social mobility later. Updated March 11, 2021. 

  4. Raj Chetty, John N. Friedman, & Jonah Rockoff. (2011). New Evidence on the Long-Term Impacts of Tax Credits. Proceedings. Annual Conference on Taxation and Minutes of the Annual Meeting of the National Tax Association, 104, 116-124. Retrieved August 18, 2021, from http://www.jstor.org/stable/prancotamamnta.104.116